Page 9 - CII Artha Magazine

Focus Story

Facing up Ukraine can spill into a more India meets 85 per cent of its dampen economic growth broad-basing of the tax

total crude oil needs through
serious form of conflagration
system can help improve
prospects, but not raising
with implications for world
imports. This would impact
revenues to bring down the
the rates could also entail
security continues to make all
India’s domestic economy in
other external risks that
deficit. Rationalisation of the
the country must avoid.
economic forecasters unsure
goods and services tax
many ways. Managing inflation,
to a Perfect and uncertain. Developments fuelled through higher oil The silver lining would be (GST) regime and a
prices, can be a challenge.
in China, the second largest
crackdown on the plethora
economy in the world, are no
State-owned oil companies
that remittances would
of exemptions in the direct
continue to provide some
would continue to remain
less troubling. Doubts about
comfort and foreign direct
its ability to quickly recover
constrained as far as pricing
QUALITY OF FISCAL
investments should stay
from the Covid-induced
their petroleum products is
Storm economic disruption have concerned. Tax revenues from buoyant, given the fact that CONSOLIDATION
THROUGH
even at a growth rate of 6
the petroleum sector would
cast their impact on global
to 7 per cent, India would
economic sentiments. A more
also remain a little subdued as
USHERING TAX
be among the
inward-looking economic
the government may have to
REFORMS IS
better-performing
model likely to be pursued by
reduce taxes if global crude
the Chinese leadership has
and should attract capital
also contributed to the oil prices move northwards. economies of the world CRITICAL
geopolitical uncertainties over India’s foreign trade also will in new projects. taxes would be the order of
global economic prospects. come under pressure. the day.
Exports, which had begun What should India do
Finally, the emergence of doing well, might take a hit under these circumstances Recasting the trade policy
protectionism, rising tariff again. Already, their growth that look like a perfect approach would also help
T he decoupling of the domestic product or GDP. A walls and a clear move away has begun to slow significantly. storm? Policy adventurism soften the blow caused by a
over 4 per cent of gross
Indian economy is a
is certainly not going to be
widening trade deficit.
With international crude oil
from globalisation even by
myth that has been combined fiscal deficit countries, which had been prices remaining elevated and a way out during a Joining a regional trade
conclusively busted in the (including that of the Centre votaries of such free a likely increase in the situation where both agreement or early
past. Immediately after the and the states) of between 7 enterprise-based economic domestic demand for domestic and international conclusion of meaningful
North Atlantic Financial Crisis and 9 per cent of GDP in this policies, have made the importing industrial goods economic headwinds might free trade pacts with
of 2008-09, the Indian period created further challenges from the current and raw materials, India’s gather momentum. important trading nations
economy seemed to remain complications and spelt geopolitical developments merchandise trade deficit should receive priority.
largely unaffected in terms of trouble for the Indian even more daunting. Nobody would widen further putting Instead, the governments Excessive dependence on a
growth. India’s economic economy. The idea that global talks about a multilateral pressure on the external at the Centre and the subsidy-centric Production
growth had slumped to 3.1 economic crises do not trade order any more. The account. states should remain Linked Incentive scheme to
per cent in 2008-09 but had adversely impact the Indian campaign for unrestricted focused on providing a attract fresh investment
bounced back with a healthy economy was once again movement of capital and Adding pressure to India’s clear and credible road should give way to a policy
growth rate of 7.9 per cent in shattered. labour is almost dead. external account could be an map for reducing the fiscal that incentivises foreign
2009-10 and even higher at Regional trade agreements outflow of foreign portfolio deficit. For three years investors to explore
8.5 per cent in 2010-11. THE DECOUPLING have still survived, but global investments, as central banks running, the combined establishing global supply
in the US and Europe keep
government deficit has
Exports had contracted by OF THE INDIAN is an outcome of a variety of Russia-Ukraine conflict value chains, in a post-Covid raising interest rates. This remained above 10 per chains in India, for which the
tariff regime needs to be
world, have made way for
3.5 per cent, but with a lag in ECONOMY IS A complex and inter-related worsened the economic regional value chains. would also put pressure on cent. Prospects of a perfect fixed and made more
2009-10. Imports too had MYTH factors spanning the areas of situation across the world. the exchange rate of the storm should provide the attractive.
followed a similar pattern, but economy, geo-politics and the Fears of a global economic Such a global economic Indian rupee and on the government a perfect
with a difference. emergence of a new global slowdown should have kept a scenario is bound to pose Reserve Bank of India or RBI opportunity to signal a The next general elections
In contrast to past global economic order. lid on international crude oil new challenges for the Indian to raise interest rates further faster and suitably are due in 2024. The Budget
Over the following few years, crises, recent developments prices. But the Russia-Ukraine economy. In the normal to not only rein in inflationary calibrated path towards for 2023-24 is to be
the Indian economy did begin in the world are far more The unwinding of war has roiled the energy course, a global economic pressures in the domestic fiscal consolidation. presented on February 1
showing clear signs of the complex and uncertain. liquidity in the markets. The record low slowdown should have economy, but also to reduce 2023. This would be the
impact of the global financial For instance, the face of rising levels of crude oil inventory, softened the impact of an oil the arbitrage opportunity for The quality of fiscal government’s last full Budget
crisis. While the rise in North Atlantic inflation the war and the threat of an import bill on India’s external Indians to invest in consolidation would be of before the next general
exports in subsequent years Financial Crisis of began in the output cap by oil producers account. But the global dollar-denominated immense criticality. Fiscal elections. There would be
was relatively muted because 2008-09 was largely last quarter have conspired to keep the economic slowdown this time international bonds. If this deficits can be reduced by temptations to make that
of slower global economic fuelled by economic of 2021, crude oil prices at elevated is accompanied with the were to happen, the RBI’s simply slashing into a pre-election exercise.
growth after a surge in 2010, developments. But the much before levels. Russia-Ukraine war which foreign exchange reserves expenditure. But in the The government should
India’s imports kept growing economic slowdown the would keep oil prices level and the import cover current situation it would avoid that pitfall as the
at a faster pace to feed that the world fears now The uncertainty about how elevated at around US$100 a could see a further decline. be more appropriate and challenges arising out of a
domestic demand. the war between Russia and barrel, according to energy Higher domestic interest even rewarding if tax confluence of adverse global
experts. rates would, no doubt, reforms leading to a factors are formidable.
This widened the country’s Mr. A.K. Bhattacharya, Member, CII Economic Affairs Council
current account deficit to & Editorial Director at Business Standard and its former Editor
08 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 09
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
DECEMBER 2022 DECEMBER 2022